PRESIDENT OBAMA: Well, I think we're going to find out in the next 48 hours what Congress decides to do, but I think it's important for the American people to understand exactly what this fiscal cliff is, because it-- it's actually not that complicated. The tax cuts that were introduced in 2001, 2003, 2010, those were extended and they're all about to expire at the end of the year. So on midnight December 31st, if Congress doesn't act then everybody's taxes go up. And for the average family that could mean a loss of 2,000 dollars in income.For the entire economy that means consumers have a lot less money to make purchases, which means businesses are going to have a lot less customers, which means that they're less likely to hire and the whole economy could slow down at a time when the economy is actually starting to pick up and we're seeing signs of recovery in housing and in employment numbers improving.And, so what Congress needs to do, first and fore-- foremost, is to prevent taxes from going up for the vast majority of Americans. And this was a major topic of discussion throughout the campaign. What I said was is that we should keep taxes where they are for 98 percent of Americans, 97 percent of small businesses. But if we're serious about deficit reduction we should make sure that the wealthier are paying a little bit more and combine that with spending cuts to reduce our deficit and put our economy on a long-term trajectory of growth.You know, we have been talking to the Republicans ever since the election was over. They have had trouble saying yes to a number of repeated offers. Yesterday, I had another meeting with the leadership and I suggested to them if they can't do a comprehensive package of-- of smart deficit reductions, let's at minimum make sure that people's taxes don't go up and that two million people don't lose their unemployment insurance.And, you know, I was modestly optimistic yesterday, but we don't yet see an agreement. And now the pressure's on Congress to produce. If they don't, what I've said is that in the Senate we should go ahead and introduce legislation that would make sure middle class taxes stay where they are and there should be an up or down vote. Everybody should have a right to vote on that. You know, if-- if Republicans don't like it, they can vote no. But I actually think that there's a majority support for making sure that middle class families are held harmless.

GREGORY: If you go over the cliff

PRESIDENT OBAMA: Mm-Hm.

GREGORY: what's the impact in the markets, which have been pretty confident up until now that a deal would get done?

PRESIDENT OBAMA: Well, you know, it's-- it's hard to speculate on the markets, but obviously I think business and investors are going to feel more negative about the economy next year. If you look at projections of 2013, people generally felt that the economy would continue to grow, unemployment would continue to tick down, housing would continue to improve.But what's been holding us back is the dysfunction here in Washington. And if, you know, people start seeing that on January 1st this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had had the Republicans been willing to take the deal that I gave them, if they say that people's taxes have gone up, which means consumer spending is going to be depressed, then obviously that's going to have an adverse reaction in the markets.

GREGORY: What about automatic spending cuts? Those take effect January 1st as well. Do they have to be part of this deal? You've got half of those cuts in defense alone.

PRESIDENT OBAMA: Well, the-- the other part of the fiscal cliff is Congress agreed that they would cut an additional 1.2 trillion dollars in spending. They put a committee together to try to come up with those numbers. They didn't figure out how to do it. And so what we now have is a situation where these automatic spending cuts go into place.Now if-- if we have raised some revenue by the wealthy paying a little bit more, that would be sufficient to turn off what's called the sequester--these automatic spending cuts, and that also would have a better outcome for our economy in long-term.But, you know, so far, at least, Congress has not been able to get this stuff done. Not because Democrats in Congress don't want to go ahead and cooperate, but because I think it's been very hard for Speaker Boehner and Republican Leader McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit-- as part of an overall deficit reduction package.

GREGORY: Well, you talk about dysfunction in Washington. You signed this legislation setting up the fiscal cliff 17 months ago. How accountable are you for the fact that Washington can't get anything done and that we are at this deadline again?

PRESIDENT OBAMA: Well, I-- I have to tell you, David, if-- if you look at my track record over the last two years, I cut spending by over a trillion dollars in 2011. I campaigned on the promise of being willing to reduce the deficit in a serious way, in a balanced approach of spending cuts and tax increases on the wealthy while keeping middle class taxes low.I put forward a very specific proposal to do that. I negotiated with Speaker Boehner in good faith and moved more than halfway in order to achieve a grand bargain. I offered over a trillion dollars in additional spending cuts so that we would have two dollars of spending cuts for every one dollar of increased revenue. I think anybody objectively who's looked at this would say that, you know, we have put forward not only a sensible deal but one that has the support of the majority of the American people, including close to half of Republicans.

GREGORY: But when they say...

PRESIDENT OBAMA: And it's...

GREGORY: ...leadership falls on you, Mister President, you don't have a role here in...

PRESIDENT OBAMA: Well...

GREGORY: ...breaking this impasse? You've had a tough go with Congress.

PRESIDENT OBAMA: David, you know, at a certain point if folks can't say yes to good offers, then I also have an obligation to the American people to make sure that the entire burden of deficit reduction doesn't fall on, you know, seniors who are relying on Medicare. I also have an obligation to make sure that families who rely on Medicaid to take care of a disabled child aren't carrying this burden entirely. I also have an obligation to middle class families to make sure that they're not paying higher taxes when millionaires and billionaires are not having to pay higher taxes.There is a basic fairness that is at stake in this whole thing that the American people understand and they listened to an entire year's debate about it. They made a clear decision about the-- the approach they prefer, which is a balanced, responsible package.They rejected the notion that the economy grows best from the top down. They believe that the economy grows best from the middle class out. And at a certain point, you know, it is very important for Republicans in Congress to be willing to say, "We understand we're not going to get 100 percent. We are willing to compromise in a serious way in order to solve problems," as opposed to be worrying about the next election.

GREGORY: You said that Republicans have a hard time saying yes. Particularly to you.

PRESIDENT OBAMA: Yeah.

GREGORY: What is it about you, Mister President, that you think is so hard to say yes to?

PRESIDENT OBAMA: You know, that's something you're probably going to have to ask them, because, you know, David, you-- you follow this stuff pretty carefully. The offers that I've made to them have been so fair that a lot of Democrats get mad at me. I mean I offered to make some significant changes to our entitlement programs in order to reduce the deficit.I offered not only a trillion dollars in-- over a trillion dollars in spending cuts over the next 10 years, but these changes would result in even more savings in the next 10 years. And would solve our deficit problem for a decade. They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected. That seems to be their only overriding, unifying theme.And-- and at some point I think what's going to be important is that they listen to the American people. Now, you know, the-- I think that over the next 48 hours, my hope is that people recognize that, regardless of partisan differences, our top priority has to be to make sure that taxes on middle class families do not go up that would hurt our economy badly.We can get that done. Democrats and Republicans both say they don't want taxes to go up on middle class families. That's something we all agree on. If we can get that done that takes a big bite out of the fiscal cliff. It avoids the worst outcomes. And we're then going to have some tough negotiations in terms of how we continue to reduce the deficit, grow the economy and create jobs.

GREGORY: If this fight comes back-- and I want to ask you specifically about entitlements: Medicare and Social Security.

PRESIDENT OBAMA: Right.

GREGORY: Are you prepared in the first year of your second term to significantly reform those two programs? To go beyond the cuts you've suggested to benefits in Medicare, which your own debt commission suggested you'd have to do if you were really going to shore up Medicare at least. Are you prepared to do that in your first year of the second term?

PRESIDENT OBAMA: What I've said is I am prepared to do everything I can to make sure that Medicare and Social Security are there, not just for this generation but for future generations.

GREGORY: You've got to talk tough to seniors...

PRESIDENT OBAMA: But...

GREGORY: ...don't you about this? And say, something's got to give?

PRESIDENT OBAMA: ...but I already have, David, as you know, one of the proposals we made was something called Chain CPI, which sounds real technical but basically makes an adjustment in terms of how inflation is calculated on Social Security. Highly unpopular among Democrats. Not something supported by AARP. But in pursuit of strengthening Social Security for the long-term I'm willing to make those decisions. What I'm not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I'm not willing to do. And so...

GREGORY: Would you commit to that first year of your second term getting significant reform done? Telling Congress, "We've got to do it in "

PRESIDENT OBAMA: No, no, no...

GREGORY: ..."the first year?"

PRESIDENT OBAMA: ...but, David, I want to be very clear. You are not only going to cut your way to prosperity. One of the fallacies I think that has been promoted is this notion that deficit reduction is only a matter of cutting programs that are really important to seniors, students and so forth.That has to be part of the mix, but what I ran on and what the American people elected me to do was to put forward a balanced approach. To make sure that there's shared sacrifice. That everybody is doing a little bit more. And it is very difficult for me to say to a senior citizen or a student or a mom with a disabled kid, "You are going to have to do with less but we're not going to ask millionaires and billionaires to do more." That's not something that we're...

GREGORY: Can I ask you about...

PRESIDENT OBAMA: That's not an approach that the American people think is right. And, by the way, historically that's not how we grow an economy. We grow an economy when folks in the middle, folks who are striving to get in the middle class, when they do well.

GREGORY: But I'm asking you about timeframe because, as you well know, as a second term president now, about to begin to your second term, your political capital, even having just won reelection, is limited. So what is your single priority of the second term? What is the equivalent to healthcare?

PRESIDENT OBAMA: Well, there are a couple of things that we need to get done. I've said that fixing our broken immigration system is a top priority. I will introduce legislation in the first year to get that done. I think we have talked about it long enough. We know how we can fix it. We can do it in a comprehensive way that the American people support. That's something we should get done. The second thing that we've got to do is to stabilize the economy and make sure it's growing. Part of that is deficit reduction. Part of it is also making sure that we're investing, for example, in rebuilding our infrastructure, which is broken. And, you know, if we are putting people back to work rebuilding our roads, our bridges, our schools, in part paying for it by some of these broader long-term deficit reduction measures that need to take place that will grow the economy at the same time as we're also setting our path for long-term fiscal stability.Number three. You know, we've got a huge opportunity around energy. We are producing more energy and America can become an energy exporter. How do we do that in a way that also deals with some of the environmental challenges that we have at the same time? So that's going to be a third thing.But the most immediate thing I've got to do starting on January 1st, if Congress doesn't act before the end of the year, is make sure that taxes are not going up on middle class families. And because it is going to be very hard for the economy to sustain its current growth trends if suddenly we have a huge bite taken out of the average...

GREGORY: Those are...

PRESIDENT OBAMA: ...American's paycheck.

GREGORY: Those are four huge things and you didn't mention after Newtown, although I know you're thinking about it, new gun regulations.

PRESIDENT OBAMA: Yes.

GREGORY: Mayor Bloomberg of New-- New York told me a couple weeks ago on this program that ought to be your number one agenda item. You know how hard this is. Do you have the stomach for the political fight for new gun control laws?

PRESIDENT OBAMA: You know, David, I think anybody who was up in Newtown, who talked to the parents, who talked to the families, understands that, you know, something fundamental in America has to change. And all of us have to do some soul searching, including me as president that we allow a situation in which 20 precious small children are getting gunned down in a classroom. And I've been very clear that, you know, an assault rifle ban, you know, banning these high capacity clips, background checks, that there are a set of issues that I have historically supported and one will continue to support.

GREGORY: But can you get it done? I mean the politics...

PRESIDENT OBAMA: And...

GREGORY: ...is the question.

PRESIDENT OBAMA: ...so the question is are we going to be able to have a national conversation and move something through Congress. I'd like to get it done in the first year. I will put forward a very specific proposal based on the recommendations that Joe Biden's task force is putting together as we speak. And so this is not something that I will be putting off. But...

GREGORY: The NRA says it's just not going to work.

PRESIDENT OBAMA: Well...

GREGORY: It didn't work before. It's not going to work now.

PRESIDENT OBAMA: You know, my response is something has to work. And it is not enough for us to say, "This is too hard so we're not going to try." So what I intend to do is I will call all the stakeholders together. I will meet with Republicans. I will meet with Democrats. I will talk to anybody. I think there are a vast majority of responsible gun owners out there who recognize that we can't have a situation in which somebody with, you know, severe psychological problems is able to get the kind of high capacity weapons that-- that this individual in Newtown obtained and-- and gunned down our kids. And, yes, it's going to be hard.

GREGORY: Do we have an armed guard...

PRESIDENT OBAMA: But...

GREGORY: ...at every school in the country? That's what the NRA believes. They told me last week that could work.

PRESIDENT OBAMA: You know, I am not going to prejudge the recommendations that are given to me. I am skeptical that the only answer is putting more guns in schools. And I think the vast majority of the American people are skeptical that that somehow is going to solve our problem. And, look, here's-- here's the bottom line. We're not going to get this done unless the American people decide it's important.And so this is not going to be simply a matter of me spending political capital. One of the things that you learn, having now been in this office for four years, is the old adage of Abraham Lincoln's. That with public opinion there's nothing you can't do and without public opinion there's very little you can get done in this town. So I'm going to be putting forward a package and I'm going to be putting my full weight behind it. And I'm going to be making an argument to the American people about why this is important and why we have to do everything we can to make sure that something like what happened at Sandy Hook Elementary does not happen again.But ultimately the way this is going to happen is because the American people say, "That's right. We are willing to make different choices for the country and we support those in Congress who are willing to take those actions." And will there be resistance? Absolutely there will be resistance.And the question then becomes, you know, whether we are actually shook up enough by what happened here that it does not just become another one of these routine episodes where it gets a lot of attention for a couple of weeks and then it drifts away. It certainly won't feel like that to me. This is something that, you know, that was the worst day of my presidency. And it's not something that I want to see repeated.

GREGORY: It hit close to home.

PRESIDENT OBAMA: Absolutely.

GREGORY: Let me ask you about a couple of foreign policy notes. After the attack in Benghazi, is there a need for more accountability so that this doesn't happen again? And do you know who was behind the attack at this point?

PRESIDENT OBAMA: Two points. Number one, I think that Tom Pickering and Mike Mullen who headed up the-- the review board did a very thorough job in identifying what were some severe problems in diplomatic security. And they provided us with a series of recommendations. Many of them were already starting to be implemented. Secretary Clinton has indicated that she is going to implement all of them.What I've-- my message to the State Department has been very simple. And that is we're going to solve this. We're not going to be defensive about it. We're not going to pretend that this was not a problem. This was a huge problem. And we're going to implement every single recommendation that's been put forward.Some individuals have been held accountable inside of the State Department and what I've said is that we are going to fix this to make sure that this does not happen again, because these are folks that I send into the field. We understand that there are dangers involved but, you know, when you read the report and it confirms what we had already seen, you know, based on some of our internal reviews; there was just some sloppiness, not intentional, in terms of how we secure embassies in areas where you essentially don't have governments that have a lot of capacity to protect those embassies. So we're doing a thorough-going review. Not only will we implement all the recommendations that were made, but we'll try to do more than that. You know, with respect to who carried it out, that's an ongoing investigation. The FBI has sent individuals to Libya repeatedly. We have some very good leads, but this is not something that, you know, I'm going to be at liberty to talk about right now.

GREGORY: In the politics, in the back and forth in this, do you feel like you let your friend Susan Rice hang out there to dry a little bit?

PRESIDENT OBAMA: No. First of all, I think I was very clear throughout that Susan has been an outstanding U.N. ambassador for the United States. She appeared on a number of television shows reporting what she and we understood to be the best information at the time. This was a politically motivated attack on her. I mean of all the people in my national security team she probably had the least to do with anything that happened in Benghazi. Why she was targeted individually for the kind of attacks that she was subjected to is-- is-- was puzzling to me. And I was very clear in the days after those attacks that they weren't acceptable. So, you know, the good thing is-- is that I think she will continue to serve at the U.N. and do an outstanding job. And I think that most Americans recognize that these were largely politically motivated attacked-- attacks as opposed to being justified.

GREGORY: You have another series of cabinet choices to make. Former Senator Chuck Hagel has come under criticism for some comments he's made including about a former ambassador nominee during the Clinton years that being gay was an inhibiting factor to being gay to do an effective job. Is there anything about Chuck Hagel's record or statements that's disqualifying to you should you nominate him to run the Defense Department?

PRESIDENT OBAMA: Well, first of all, I haven't made a decision about who to nominate. And my number one criteria will be who's going to do the best job in helping to secure America.

GREGORY: Anything disqualify

PRESIDENT OBAMA: And...

GREGORY: ...him?

PRESIDENT OBAMA: Not that I see. I've served with Chuck Hagel. I know him. He is a patriot. He is somebody who has done extraordinary work both in the United States Senate. Somebody who served this country with valor in Vietnam. And is somebody who's currently serving on my Intelligence Advisory Board and doing an outstanding job. So I haven't made a decision on this. With respect to the particular comment that you quoted, he apologized for it. And I think it's-- it's a testimony to what has been a positive change over the last decade in terms of people's attitudes about, you know, gays and lesbians serving our country. And that's something that I'm very proud to have led. And I think that anybody who serves in my administration understands my attitude and position on those issues.

GREGORY: Mister President, as you look forward to a second term, you think about your legacy, you think about your goals, how frustrated are you at how hard it appears to be to get some of these things done? Very difficult relationship with Congress. People come up to me all the time and say, "Don't they realize, all of them, the president, Republicans and Democrats, how frustrated we all are?"

PRESIDENT OBAMA: Well, I think we're all frustrated. You know, the only thing I would-- I would caution against, David, is I think this notion of, "Well, both sides are just kind of unwilling to cooperate." And that's just not true. I mean if you look at the facts, what you have is a situation here where the Democratic Party, warts and all, and certainly me, warts and all, have consistently done our best to try to put country first. And to try to work with everybody involved to make sure that we've got an economy that grows, make sure that it works for everybody, make sure that we're keeping the country safe. And, you know, the-- the-- does the Democratic Party still have some knee jerk ideological positions and are there some folks in the Democratic Party who sometimes aren't reasonable? Of course. That-- that's true of every political party.But generally if you look at how I've tried to govern over the last four years and how I'll continue to try to govern, I'm not driven by some ideological agenda. I'm a pretty practical guy and I just want to make sure that things work. And-- and one of the nice things about never having another election again, I will never campaign again, is, you know, I think you can rest assure that all I care about is making sure that I leave behind an America that is stronger, more prosperous, you know, more stable, more secure than it was when I-- I came into office and-- and that's going to continue to drive me. And I-- I think that the issue that we're dealing with right now in the fiscal cliff is a prime example of it. What I'm arguing for are maintaining tax cuts for 98 percent of Americans. I don't think anybody would consider that some liberal left wing agenda. That's some-- that-- that used to be considered a pretty mainstream Republican agenda.And it's something that we can accomplish today if we simply allow for a vote in the Senate and in the House to get it done. The fact that it's not happening is an indication of, you know, how far certain factions inside the Republican Party have gone where they-- they can't even accept what used to be considered centrist, mainstream positions on these issues.Now I re-- I remain optimistic, I'm just a congenital optimist, that eventually people kind of see the light. You know, Winston Churchill used to say that we Americans, you know, we-- we try every other option before we finally do the right thing. After everything else is exhausted we eventually do the right thing and I-- I think that that's true for Congress as well. And-- and I think it's also important for Americans to remember that politics has always been messy. People have been asking me a lot about the-- the film Lincoln and, you know...

GREGORY: Is this your Lincoln moment?

PRESIDENT OBAMA: Well, no. Look, A, I never compare myself to Lincoln and, B, obviously the magnitude of the issues are quite different from the Civil War and slavery. The point, though is, is democracy's always been messy. And, you know, we're a big, diverse country that is-- is constantly sort of arguing about all kinds of stuff but eventually we do the right thing.And in this situation I'm confident that one or two things are going to happen when it comes to the fiscal cliff. Number one, we're going to see an agreement in the next 48 hours, in which case middle class taxes will not go up. If that doesn't happen, then Democrats in the Senate will put a bill on the floor of the Senate and Republicans will have to decide if they're going to block it, which will mean that middle class taxes do go up. I don't think they would want to do that politically but they may end up doing it.And if all else fails, if Republicans do in fact decide to block it, so that taxes on middle class families do in fact go up on January 1st, then we'll come back with a new Congress on January 4th and the first bill that will be introduced on the floor will be to cut taxes on middle class families. And, you know, I-- I don't think the average person's going to say, "Gosh, you know, that's a-- that's a really partisan agenda on the part of either the president or Democrats in Congress." I think people will say, "That makes sense, because that's what the economy needs right now."So if-- one way or another, we'll get through this. Do I wish that things were more orderly in Washington and rational and people listened to the best arguments and compromised and operated in a-- in-- in a more thoughtful and organized fashion? Absolutely. But when you look at history that's-- that's been the exception rather than the norm.

(End videotape)

GREGORY: My interview with President Obama. Coming up, reaction to the interview and what it tells us about what his second term will look like. Joining me, NBC's Tom Brokaw, presidential historian Doris Kearns Goodwin, executive editor at Random House Jon Meacham, David Brooks of the New York Times and our political director and chief White House correspondent Chuck Todd. All coming up, next.

GREGORY: Coming up, reaction from our roundtable this morning. You've just heard the president lay out his big agenda items for the second term--immigration, the economy, energy and middle class tax cuts, not to mention gun control. But can he realistically get any of them done given Washington's track record of dysfunction? (Unintelligible) roundtable is here to break it all down after this brief commercial break.

(Videotape)

PRESIDENT OBAMA: I'm confident that one or two things are going to happen when it comes to the fiscal cliff. Number one, we're going to see an agreement in the next 48 hours, in which case middle class taxes will not go up. If that doesn't happen, then Democrats in the Senate will put a bill on the floor of the Senate and Republicans will have to decide if they're going to block it, which will mean that middle class taxes do go up. I don't think they would want to do that politically but they may end up doing it.